4 Ways To Handle Huge Tax Bills

As tax season approaches we want to ensure our clients know their rights as tax payers. Even if you are selected to be audited, assessed penalties, or have a huge tax bill to pay after filing, you still have rights. Knowing your taxpayer rights can help ease your fears, frustration, and angst around filing taxes, or handling your tax issues in the upcoming season.

In 2014 the IRS adopted the Taxpayer Bill of Rights. The Taxpayer Bill of Rights takes the multiple existing rights embedded in the tax code and groups them into 10 broad categories, making them more visible and easier for taxpayers to find.

While no taxpayer likes being audited by the IRS, there are ways for you to potentially decrease the risk of being audited outside of the IRS’ random selection process. Read more.

In this article we will walk you through a few options that are available to taxpayers in the event that you are audited and assessed penalties or have a huge tax bill.

 

Installment agreements

If you are financially unable to pay your entire tax debt at once, you can arrange to make affordable monthly payments. Note that you must be current with your tax filings in order to be eligible for an installment payment agreement.

Assuming all of your return filings are current, you may be eligible to apply for an online payment agreement if:

·        You are an individual that owes $50,000 or less in combined individual income tax, penalties and interest, and have filed, or

·        You have a business that owes $25,000 or less in payroll taxes and have filed all required returns.

Even if you are not eligible for the online payment application, you may still apply by completing and mailing the installment agreement forms or by calling the phone number on your tax bill.

 

Abatements (of penalties)

If you have failed to file a tax return or to pay on time, the IRS offers a First-Time Penalty Abatement, which can significantly bring down your total balance due. The IRS lists three guidelines for taxpayers to potentially qualify for this service on IRS.gov:

  • You did not previously have to file a return or you have no penalties for the 3 tax years prior to the tax year in which you received a penalty.
  • You filed all currently required returns or filed an extension of time to file.
  • You have paid or arranged to pay any tax due

 

Offer-in-compromise

An offer-in-compromise allows a taxpayer to settle his or her tax debt for less than the full amount owed. The IRS will consider your offer after reviewing your ability to pay, income, expenses, and net assets. The IRS further suggests that it is in the best interest of a taxpayer to hire a tax professional to help you file an offer, as the offer-in-compromise is not everyone.

 

Currently non-collectible

Not collectible status can potentially protect a taxpayer at risk of wage garnishments, levies, threatening letters and collection enforcement. The IRS will consider an account for non-collectible status if documents can be provided showing that there would be a financial hardship if you were forced to pay the debt owed. This option will obviously require a lot of paperwork to prove that hardship, but if the statute of limitations runs out while in this status, you may NEVER have to pay that tax due.

While the IRS has created many ways to help taxpayers in need, speaking to a tax professional as soon as possible to develop a plan of action is the best way to avoid tax issues. If you’re facing an IRS audit or if you have other tax-related questions Desnoyers CPA is glad to speak with you. Contact us today!

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Written by Desnoyers CPA

Desnoyers CPA

Known for her friendly, outgoing nature and her rare talent for financial foresight, Lydia Desnoyers has been serving individuals and small businesses in Florida since 2010. After earning her Master’s Degree in Accounting from Nova Southeastern University and her Bachelor’s Degree in Accounting from Florida State University, she became a Certified Public Accountant and a Certified Fraud Examiner.